Mileage fees vs. fuel taxes

“For mileage fee program designers, [our] study findings imply that they should carefully consider both current and future urban form patterns when estimating the outcome of such [mileage fee] programs, such as the likely revenues collected from mileage fees or the potential for congestion relief.” –Zhan Guo, Ph.D., assistant professor of urban planning and transportation policy at New York University, the lead researcher for the Mineta Transportation Institute’s report on Oregon’s mileage fee pilot program

So … could the use of so-called “mileage fees” help reduce traffic congestion in the U.S. – especially on urban roadways – without affecting the flow of highway infrastructure upkeep funds typically generated by fuel taxes?

Well, the state of Oregon set up a pilot program a few years back to answer this very question … but the answers, gleaned from a study of Oregon’s pilot test conducted by the Mineta Transportation Institute, were in some cases quite unexpected.

First, some background: In 2006 and 2007, Oregon conducted a mileage fee pilot program to address a number of issues; the biggest one, though, NOT so much how to reduce traffic congestion but primarily to figure out how to replace “lost” fuel tax revenue as more vehicles transition to using little or no petroleum-based fuel.

(Thus it seems the old saw about the only two certainties in life being death and taxes is alive and well, thank you very much … which is an ironic way to phrase it, now that I think about it.)

MTI’s study examined the interactions between “land-use planning” and driver response to Oregon’s mileage fee program, using data from 130 households participating in the program. The analysis compares the program’s impact on vehicle miles traveled (VMT) in different locations and at different times for households charged with two different fee structures:

• “Peak-Charged” households, who paid a fee of 10 cents per mile during peak hours in the region’s congested zone but a fee of only 0.43 cents per mile for all other mileage within Oregon.

• “Flat-Rate” households, who paid a flat fee of 1.2 cents per mile for all mileage within Oregon.

MTI tried to answer four theories from the data gleaned from its study, especially in terms of how the mileage fees changed driver behavior. While we’re not talking commercial vehicles here, there are big implications for truckers, especially in terms of reducing daily work commute traffic, thus freeing up highway space to move freight faster and more efficiently.

Hypothesis 1: Peak-charged households will reduce their VMT during high-cost times more than will flat-rate households.

MTI said peak-charged households did, as expected, reduce their driving during high-cost times more than did the flat-rate households. Charging a noticeably higher fee for driving in congested conditions successfully achieved the goal of inducing households to reduce their VMT in those times and places where congestion is most a problem.

Hypothesis 2: Peak-Charged households will increase travel in the off-peak time period, and/or at all times outside the peak-charge zone, as compensation for reducing their travel during the peak hour within the peak-charge zone.

Contrary to this hypothesis, there were no detected “spillover” effects to off-peak weekday hours or to areas in Oregon outside the peak-charge zone. MTI stressed, though, that this lack of evident “spillover” may result from conditions specific to the Portland region, including the urban growth boundary (UGB) in Portland, which limits the presence of travel destinations outside the urban area.

Hypothesis 3: Given a sufficient incentive to reduce driving, households in denser, mixed-use, and transit-accessible neighborhoods are more likely to reduce their VMT than would households in other types of neighborhoods.

MTI said its findings confirm this hypothesis for peak-charged households. Density and a mix of land uses were statistically significantly correlated with reduced VMT of several types, suggesting that when the travel cost increases in peak hours, households in denser and mixed-use neighborhoods are able to reduce their VMT more than those who do not live in these neighborhoods.

However, the effects on flat-rate households were quite different, MTI found, as density and mixed-use tended to encourage – not discourage – driving. Ha ha! Why did this happen? In short, what the report concludes (I think, for the language got awfully complicated in this part of MTI’s study) is that as drivers were charged for their mileage monthly, yet paid for their non-taxed fuel weekly (or even daily), they seemed to be saving more money even though they drove more miles. This “disconnect” in MTI’s words is one of those things that needs to be addressed if a state were to develop a more permanent mileage-fee program.

Hypothesis 4: Replacing the fuel tax with a mileage fee establishes a stronger and more prominent connection between travel cost and travel distance than does a fuel tax.

The study results mostly confirm this hypothesis (though, as seen above, not always in expected ways!) The introduction of the peak charge enhanced the influence of urban form on several types of household VMT. Also, for all types of VMT the urban form variables had a greater influence on the peak-charged households than on the Flat-Rate households.

OK, so what does all of it mean in the end? Well, the MTI came to several conclusions from a policy perspective:

1. Charging a noticeably higher fee for driving in congested conditions can successfully motivate households to reduce their VMT in those times and places where congestion is most a problem.

2. Households in all types of neighborhoods studied will likely reduce their peak-hour and overall travel under a mileage fee program that charges a high-rate for peak-hour travel, though households in higher-density neighborhoods with a mix of land uses will likely make greater reductions in VMT.

3. A mileage fee program that charges a high rate during the peak hour will likely strengthen the underlying influence of urban form on travel behavior, as compared to the current gas tax system. In other words, for land-use planners, it suggests that switching from fuel taxes to mileage fees would strengthen the power of land-use planning as a policy tool to shift some travel from solo driving trips to more sustainable modes. Also, this link between urban form and travel behavior in response to a mileage fee implies that mileage-fee program designers will need to carefully consider both current and future urban form patterns when estimating the likely revenues collected from mileage fees and also the impact the fees could have on congestion levels.

4. The study findings suggest that residents in lower-density suburban areas, as well as residents in higher-density and more mixed-use neighborhoods, are able to reduce their driving in response to a mileage fee. Therefore, the results add new empirical evidence to the ongoing equity debate about whether mileage fees are unfair to households living in suburban communities, and suggest that this concern may not be warranted.

5. Although a peak-hour mileage charge could encourage drivers to think carefully about their travel decisions and they would probably reduce their VMT accordingly, the ultimate program outcomes will likely depend on the specific program design – especially when and how the mileage fee is paid. If the payment is made less frequently than the current system of gas taxes charged at the pump, such as through a monthly billing program, drivers might increase instead of decrease their VMT because they would be less aware of the cost of their travel.

In the end, Zhan Guo – assistant professor of urban planning and transportation policy at New York University and MTI’s principal investigator for this report – concluded that mileage fees that are higher during rush hour can motivate households to reduce their driving in those times and places where congestion is most a problem.

“In addition, we also found that the mileage reduction was greater in traditional neighborhoods—denser communities with transit service and a mix of housing, shopping, and jobs—than in suburban communities that have low-density housing and no transit service, shopping, or jobs,” he added. “This finding suggests that some land use patterns are more supportive of mileage fees than others.”

He also stressed that MTI’s research suggests that the design of a mileage-fee program is absolutely critical. “For example, drivers would more likely modify their behavior under a program that collects the fees each time they buy gas rather than under one where drivers receive a monthly bill for their mileage charges,” he explained.

Interesting stuff, for sure. Now we get to wait and see if any state is willing to go “all in” and try to adopt such a mileage-fee program in lieu of fuel taxes. That is what will really bring this debate between mileage fees and fuel taxes to a boil.